Tax, investments and pension rules can change over time so the information below may not be current. This article was correct at the time of publishing, however, it may no longer reflect our views on this topic.

Our view

Standard Chartered may be UK listed, but it's really an Asian bank. That didn't exempt it from the Bank of England's call for the sector to scrap any dividends until next year, but it does make its position in the current crisis rather different.

Volatility in financial markets has translated into a bumper result in the investment bank while corporate lending has spiked as companies look to secure extra liquidity. The bank's made significant provisions for higher loan defaults resulting from the crisis. The debt adjustments first quarter results are an accounting technicality we think investors can, by and large, ignore.

So far, so familiar.

However, there are some signs the group's Asian markets have weathered the current coronavirus storm better than their Western counterparts. While we remain wary of the risk of a second wave of virus infections, and additional lockdowns that would bring, that could means Standard Chartered turns the corner quicker than more domestically focused rivals.

The bank is also more exposed to dollar interest rates than sterling. And while the recent Fed interest rate cuts have knocked around $600m off this year's revenue, historically the US central bank has been better able to raise rates again than the Bank of England. Low interest rates are a problem because while falling rates will largely be passed onto borrowers (thanks to a combination of base rate tracking loans, competition and regulatory action) the interest banks pay to savers is already on the floor. With little room to push funding costs lower the net interest margin (the difference between what the bank can make on loans and pays for funding) will be squeezed. That will significantly reduce the profitability of loans.

It's worth noting though that Standard Chartered does face headwinds from weakening emerging market currencies and a strengthening dollar. Companies that borrow in dollars but earn profits in local currencies will find borrowing more expensive, and Standard Chartered's local currency denominated profits will be worth less.

Early on in my career I was told that 'if you want access to a particular economy, buy a bank'. That remains true today. Given its relatively healthy capital position Standard Chartered is perhaps a reasonably straight forward play on a stronger recovery in Asian markets than in the West - although to some degree all economies are intimately linked.

First Quarter Results

Net interest income fell 4% in the first quarter of the year, to $1.8bn, as a lower net interest margin (the difference between what the bank makes on loans and pays for funding) offset increased loans to customers.

Other income rose 31% to $2.5bn, or 12% excluding the adjustments relating to debt valuation. That reflects a particularly strong result in rates and currencies businesses in the Financial Markets division.

The bank reported credit impairments relating to bad loans of $956m in the first quarter. Impairments were spread across the retail, investment and commercial banks although Corporate & Institutional Banking accounted for the vast majority. Further impairments are likely in the future.

Underlying operating expenses fell 1% at constant currency to $2.4bn.

Total CET1 capital remained broadly unchanged compared to the previous quarter, however increased lending meant the group's CET1 capital ratio fell from 13.8% at the start of the year to 13.4% at the end of the quarter.

Standard Chartered expects a gradual recovery from coronavirus outbreak, with the global economy moving out of recession in the second half of 2020. The group expects the recovery to driven by Asian markets.

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